Annual report pursuant to Section 13 and 15(d)

Commitments, Contingencies and Other Liabilities

v3.20.4
Commitments, Contingencies and Other Liabilities
12 Months Ended
Dec. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments, Contingencies and Other Liabilities Commitments, Contingencies and Other Liabilities
 
The Company is involved in litigation and similar claims incidental to the conduct of its business. Matters that are probable of unfavorable outcome to the Company and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, management's estimate of the outcomes of such matters and experience in contesting, litigating and settling similar matters. In management's opinion, none of the pending actions are likely to have a material adverse impact on the Company's financial position or results of operations. The Company accrues and expenses legal fees related to loss contingency matters as incurred.

Asset Purchase Agreements Subject to Earnout Payments

On June 17, 2020, the Company acquired certain contracts for the provision of alarm monitoring and related services (the "Accounts") as well as the related accounts receivable, intellectual property and equipment inventory of Protect America, Inc. The Company paid approximately $16,600,000 at closing and will make 50 subsequent monthly payments ("Earnout Payments" will here to be defined as contingent payments to acquire subscriber accounts) consisting of a portion of the revenue attributable to the Accounts, subject to adjustment for Accounts that are no longer active, which began in August 2020. The transaction was accounted for as an asset acquisition with the cost of the assets acquired recorded as of June 17, 2020 and an estimated undiscounted liability for the Earnout Payments of approximately $86,000,000. The Earnout Payments liability for Protect America was estimated based on the terms of the payout and the forecasted attrition of the Protect America subscriber base. The estimated Earnout Payments liability for Protect America as of December 31, 2020 is approximately $83,211,000. Of this amount, $56,275,000 is presented within non-current Other Liabilities, and the remainder is presented within current Other accrued liabilities on the consolidated balance sheets.

As noted in Note 6, Variable Interest Entity above, the Company completed an asset purchase agreement with GSSA on December 23, 2020 to acquire approximately 40,000 alarm monitoring contracts through an earnout structure that included an upfront payment of $10,914,000 and a non-controlling interest liability of $31,300,000 representing the estimated discounted liability of the Earnout Payments owed to GSSA. The Earnout Payments liability for GSSA was estimated based on the terms of the payout and the forecasted attrition of the GSSA subscriber base, discounted at an effective interest rate of 10.9%. At December 31, 2020, the total Earnout Payments liability to GSSA’s equity holder is $31,392,000. Of this amount, $26,695,000 is presented within non-current Other Liabilities and the remainder is presented within current Other accrued liabilities on the consolidated balance sheets.
We monitor actual versus forecasted attrition to identify the need for potential adjustments to the Earnout Payments liabilities each period. The monthly Earnout Payments are classified as Cash flows from financing activities on the consolidated statements of cash flows.